What to watch for when Microsoft reports its earnings

Microsoft reports its second quarter earnings Thursday afternoon. Here’s what to look for:

1.Layoffs Will Microsoft lay off any of its employees?

Speculation has swirled for a month now about upcoming job cuts. But despite article after article and analyst report after analyst report the speculation has not advanced since anonymous blogger Mini-Microsoft first set off the rumors on Dec. 21.

The Wall Street Journal said last week that Microsoft was “considering layoffs,” but in the next sentence said “Microsoft could end up finding alternative methods of reining in costs.” An analyst said the company was considering laying off 6 to 8 percent of its employees, but clarified in a follow-up e-mail that “there is no way to tell whether that is going to be exactly the type of reduction MSFT may eventually undertake.” A Reuters article today seems to rely on that analyst report. Not very convincing.

What we do know is that all these rumors are making Microsoft employees very nervous, and the company has consistently refused to comment. Expect clarity Thursday afternoon. Also possible that the company could announce plans for layoffs at 6 a.m. PT, right before the market opens.

2.Hiring numbers Even if Microsoft does not announce layoffs, it will be worth taking a look at how much hiring has slowed at the company. Microsoft added 1,000 jobs in October. 380 in November. And in December? The company has said it is waiting to put out those numbers until the earnings report.

3.Other cuts Microsoft will announce other cutbacks. Expect, for instance, that the company will say it is backing off some facility expansion, such as new construction. Microsoft confirmed a Seattle P-I report this week that all construction projects, except one, would be delayed in Redmond for the next three years.

4.Yahoo The on-again, off-again talks between Yahoo and Microsoft reappeared in the headlines late last week after Yahoo chairman Roy Bostock and Microsoft CEO Steve Ballmer were spotted together in the Time Warner Center. Will Microsoft care to explain?

5.The forecast In October, when Microsoft reported its first-quarter earnings, the company reduced its revenue forecast for the year to between $64.9 billion and $66.4 billion, from a previous range of $67.3 billion to $68.1 billion. The company also reduced its earnings guidance to between $2 and $2.10 per share, from between $2.12 and $2.18. At the time, CFO Chris Liddell said that the reduced forecast took into account at the top end “a mild recession” and at the bottom end a “deeper recession in the economy.” Already, though, analysts estimate that Microsoft will miss its forecast. On average, they estimate the company will post earnings per share of $1.96 this year and revenue of $63.76 billion. So will Microsoft revise its expectations?

6. Results Yes, it is a quarterly earnings announcement. So what will earnings look like? It’s hard to believe that Microsoft will match the forecast it outlined for itself in October. Back then, the company estimated revenue of between $17.3 billion and $17.8 billion and earnings per share between $0.51 to $0.53. Those estimates, though, included projections that PC sales would jump 10 to 12 percent. According to two market research firms, PC sales were essentially flat during the quarter. At the same time, though, the company never warned that its results would miss its expectations, like one analyst had expected. Analysts on average expect the company to post earnings per share of $0.49 and revenue of $17.08 billion.